Global stock indices failed to extend a five-month winning streak in October. Markets seemed to successfully predict the Trump victory as “Trump trades” as a stronger dollar and higher bond yields gained momentum during most of the month. U.S. stocks finished marginally lower while international stocks were down over 4%.

U.S. stock prices spike

While the election is now decided, and some of Trump’s policy initiatives are clear, for capital markets and the economy much remains uncertain. On a positive note, lengthy contested elections or unrest were avoided. The immediate reaction was a spike in U.S. stock prices and a decline in international stocks. The U.S. dollar also gained while U.S. bonds fell. Trump is expected to be protectionist and to run very large deficits, especially with a supportive Congress (control of the House still was undecided as of this writing). This likely raises the odds of inflation rekindling. Trump has expressed a desire to reduce corporate taxes, which would directly benefit equities, but also challenge the deficit.

The future of interest rates

A critical element will be Trump’s approach to the Fed and the path of further interest rate cuts. While the Fed will almost certainly follow through with an anticipated 25 basis point rate cut this week, the future path of rates is unknown. Trump has said he wants a voice in rates but will not attempt to mandate what the Fed does. Fed Chair Jerome Powell’s term runs through May of 2026. For now, expectations for higher rates have immediately put pressure on rate sensitive areas such as real estate and utilities. Small cap stocks jumped on the election news and may benefit from additional tax breaks from domestic production but are also considered more rate sensitive.

Mixed results for tech leaders

Earnings results from major technology leaders in October were mixed. Apple and Microsoft failed to meet lofty expectations while Alphabet and Amazon posted strong results in their cloud services divisions. Nvidia posted another strong month in anticipation of earnings and anecdotal evidence of strong demand for its newest GPU chips. The company recently surpassed Apple to become the most valuable in the world. It reports results on November 20.